US Stocks Turn Lower After Disappointing Home Sales Data

PeterA. McKay

US stocks turned lower Thursday following a disappointing reading of home sales that deepened investors' worries about the broader U.S. economy.

Major indexes posted early gains but saw them evaporate after the National Association of Realtors said that sales of existing homes fell 2.7%in August to a seasonally adjusted annual rate of 5.1 million homes, snapping a four-month streak of rising activity that analysts expected to continue in the latest reporting period.

The Dow Jones Industrial Average was recently off by six points, or 0.1%, to 9742.43. The technology focused Nasdaq Composite Index was off 0.2%. The Russell 2000 was off 0.4%.

The S&P 500 was 0ff 0.3%, led by declines of more than 1% each in its recovery-sensitive industrial, energy, and basic-materials sectors. The commodity-related categories were also hurt by a retreat in raw-materials prices, including a retreat by crude oil further below $70 a barrel.

The market drew support early on from a new report from the Labor Department, which said that initial claims for jobless benefits fell 21,000 to 530,000 in the week ended Sept. 19, below analysts' expectations for a weekly reading of 550,000 claims. Continuing claims drawn by workers for more than a week in the week ended Sept. 12 fell by 123,000 to 6,138,000 from the preceding week's revised level of 6,261,000.

Taken together, however, the latest economic releases failed to quell the big-picture fears that roiled the market on Wednesday in the wake of the latest policy announcement by the Federal Reserve's rate committee. The group kept its key rate target steady but said that inflation should nevertheless remain in check for now - a scenario that some traders believe is too good to be true.

The Fed also said it would phase out its purchases of $1.25 trillion in agency mortgage-backed securities and up to $200 billion in agency debt by the first quarter of 2010 rather than by the end of this year. The Fed said it wants to allow a smoother transition, although some analysts fretted about how that process will play out, removing a major support for credit markets that act as the lifeblood of many financial firms.

"I like the idea that they're tapering the program rather than cutting it abruptly, but I'd quibble with the way they're letting the market know about it," said strategist Barry Knapp, of Barclays Capital. "I would've preferred that they wait to say this publicly until November or so," to allow a longer period of time for the perception of Fed support to prop up the agency markets.

Credit markets were subdued on Thursday morning. The two-year Treasury note was off 1/32 to yield 0.972%. The 10-year note fell 1/32 to yield 3.417%.

Among stocks to watch on Thursday, shares of Electronic Arts declined 3% after Microsoft late Wednesday said it has no plans to acquire the video-game maker. Shares of Microsoft were little changed.

Overseas, European markets were lower in midday trading, with London's FTSE 100 down 0.1%. Asian markets finished mixed. Japanese shares made a solid showing on their first trading day after an extended holiday, while Hong Kong stocks closed lower.

The dollar weakened versus the euro and Japanese yen, but rallied versus the British pound. The U.S. Dollar Index was up 0.4%.

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